If you’ve ever paid a bill late or missed a payment by its due date, then you’re not alone. New research shows one in 10 Australians has found themselves doing just that.
But what many may not realise is that ‘defaulting’ on a bill payment, as it’s also known, may lead to a mark on their credit file, which can come back to bite later in life.
The consumer research study, commissioned by RateCity, has revealed that young Australians are most at risk with 70 percent of defaults having occurred before age 35 and nearly two-thirds before age 30.
RateCity’s money commentator, Ali Cassim, said the results are worrying and suggest that many young people are unaware of the consequences of failing to make a bill payment on time.
“The research has also shown a trend towards a credit-based society as young Australians are taking on debt earlier than previous generations did,” she said.
“More than half of Australians under the age of 35 said they took out a credit card before they turned 25, compared with just 10 percent of baby boomers. We’re certainly seeing a trend to young people and plastic – clearly, a sign of the times.”
Debt life sentence?
The study also found that one in five Australians who had suffered a default still hadn’t recovered financially, and the impact was more severe for young adults, with 25 percent of people aged 18 to 24 saying they still hadn’t found their feet financially.
“What we’re seeing is that Australians who have had a financial blip are really struggling to overcome that, and, in many cases went on to further financial difficulty as a result,” said Cassim.
“Half of the people we spoke to said that a default had led to further money troubles, and again the 18 to 24 year olds were the most affected with three-quarters saying they suffered further financially.”
Incidents like this can impact your credit history, a record of your interactions and experiences with credit and debt, both good and bad. And, given those worrying results, it raises the question – how much do you know about your credit history?
What is the significance of a credit history or report?
Every time you apply for some kind of credit – whether a credit card or a brand new home loan – the lender will carry out a credit check on you. They want to make sure you're a reliable borrower who will pay back their debts or, if not, adjust the terms of the loan accordingly.
As part of this, they will pull up your credit history and examine it. Based on what's gone on in your financial past, future creditors may decide to:
Deny you the loan, based on concerns raised by the report.
Adjust the loan – perhaps by putting on a higher interest rate – because you're a riskier borrower.
Approve the loan, as your credit history is spotless.
Just think: You could go to all the trouble of carrying out a credit card comparison and painstakingly narrowing the options down to a single product, only for the credit provider to not even approve your application.
What kind of information appears on your credit history?
Apart from your basic personal details, your credit report lists a number of pieces of information about you (which, consequently, affects your credit worthiness):
- The credit cards under your name
- Overdue or unpaid debts that were since settled
- Defaults, which happen when payments are more than 60 days late
- Credit applications (meaning that, if you apply for a car loan, it could influence your ability to secure a mortgage)
- Repayment history, a relatively recent addition that lets credit providers view your success at meeting credit repayments on time
- Bankruptcies, personal insolvency agreements, court judgements and more, that are in your name
In other words, your credit history creates a fairly detailed portrait of you as a borrower, and indicates to the lender whether or not they should put their faith in you paying them back.
Improving your credit history
A black mark on your credit history will be there for a while – five years, in the case of defaults and personal insolvencies, though longer is possible in some circumstances. You won't be able to scrub these from your record – but there are other things you can do:
If there's an incorrect listing on your report, you can undertake 'credit repair' and get it removed, either by contacting the credit reporting agency or notifying the creditor.
Credit reports nowadays record positive credit behaviour – so if you have a solid track record of making repayments on time and in full, it can benefit you, particularly if your instances of past credit impairment are relatively minor, so a missed bill payment doesn’t have to be a life sentence.
If you want to take a look at your credit report – which should be as normal as doing a home loan comparison – you can request a copy from a credit reporting agency. Just be aware that you're entitled to only one free copy a year. Then, you can thoroughly check the information and not only correct any listings, but also know where you stand in terms of how a lender will look at you.